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FIN 534 Test 3
•
Question 1
Which of the
following statements
is
CORRECT?
Answer
Correct
Answer:
If a loan has a nominal annual rate of 8%, then the effective rate will never be le
than 8%.
•
Question 2
Which of the
following statements
is CORRECT?
Answer
Correct
Answer:
Time lines can be constructed to deal with situations where some of the cash flows
occur annually but others occur quarterly.
•
Question 3
You are considering
two equally risky
annuities, each of
which pays $5,000
per year for 10 years.
Investment ORD is
an ordinary (or
deferred) annuity,
while Investment
DUE is an annuity
due. Which of the
following statements
is CORRECT?
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Correct
Answer:
A rational investor would be willing to pay more for DUE than for ORD, so their
market prices should differ.
•
Question 4
You plan to analyze
the value of a
potential investment
by calculating the
sum of the present
values of its expected
cash flows. Which of
the following would
increase
the
calculated value of
the investment?
Answer
Correct Answer:
The discount rate
•
Question 5
Your bank account
pays a 6% nominal
rate of interest. The
interest is
compounded
quarterly. Which of
the following
statements is
CORRECT?
Answer
Correct
Answer:
The periodic rate of interest is 1.5% and the effective rate of interest is greater t
6%.
•
Question 6
Which of the
following statements
is CORRECT?
Answer
Correct
Answer:
Time lines can be constructed where some of the payments constitute an annuity bu
others are unequal and thus are not part of the annuity.
•
Question 7
You plan to analyze
the value of a
potential investment
by calculating the
sum of the present
values of its expected
cash flows. Which of
the following would
lower
the calculated
value of the
investment?
Answer
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 Spring '08
 NALLA

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